By The Sizemore Letter<\/u><\/p>\n
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On my recent trip to Baltimore, I sat down to chat with Jeff Reeves about “revolutionary” stocks, using streaming pioneer Netflix ($<\/span>NFLX<\/a>)<\/strong> as an example.<\/p>\n Netflix has revolutionized media distribution. \u00a0It’s ironic, given that Netflix started as a mail-order DVD rental company, but Netflix’s streaming video service effectively killed the DVD as a format. \u00a0In a world where movies and TV shows can be sent to your TV on demand, waiting for a disc to be delivered by the postal service or–gasp!–leaving your house to rent a movie from a Redbox kiosk or Blockbuster video store \u00a0seems almost quaint.<\/p>\n There’s one little problem with the Netflix Revolution: there is no guarantee that Netflix will be the winner<\/strong>. \u00a0Netflix has few “moats” to speak of, and the company already has competition from Apple ($<\/span>AAPL<\/a>), Amazon ($<\/span>AMZN<\/a>) <\/strong>and Wal-Mart’s ($<\/span>WMT<\/a><\/strong>) Vudu–three well-capitalized competitors.<\/p>\n Watch Jeff and I discuss Netflix in the embedded video above. \u00a0And here is snippet of Jeff’s write-up from The Slant:<\/em><\/a><\/p>\n Netflix\u00a0<\/strong>(NFLX<\/a>) has been on a tear in 2013, with shares tripling since Jan. 1, and recently, Netflix reported second-quarter\u00a0earnings<\/a>\u00a0that beat estimates, while NFLX revenue met expectations.<\/p>\n But NFLX could be hitting a snag soon, says Charles Sizemore, as its relatively high P\/E ratio and stiff competition from\u00a0Amazon\u00a0<\/strong>(AMZN<\/a>) and others put the screws to this streaming video stock.<\/p>\n NFLX certainly has a great product, and Charles and I are both personally subscribers of Netflix. But that\u2019s the thing \u2014 as NFLX users, we are both all too familiar with the recent move by Amazon Prime to snap up Nickelodeon shows from Netflix by paying parent company\u00a0Viacom<\/strong>\u00a0(VIAB<\/a>) a juicier royalty rate in exchange for exclusivity on\u00a0Blue\u2019s Clues<\/em>,Dora the Explorer<\/em>,\u00a0Go, Diego, Go!<\/em>\u00a0and other children\u2019s hits.<\/p>\n Being first doesn\u2019t necessarily guarantee success, and that\u2019s a real risk for NFLX. Because after Amazon there\u2019s also\u00a0Google<\/strong>\u00a0(GOOG<\/a>) with its paid YouTube channels,Intel<\/strong>\u00a0(INTC<\/a>) launching an Internet cable product and\u00a0Apple<\/strong>\u00a0(AAPL<\/a>) pushing its own digital video businesses.<\/p>\n<\/blockquote>\n Charles Lewis Sizemore, CFA, is the editor of the\u00a0Sizemore Investment Letter<\/a>\u00a0and the chief investment officer of investments firm Sizemore Capital Management. As of this writing, he was long WMT and INTC.\u00a0Click here<\/a>\u00a0to learn about his top 5 global investing trends and get your copy of \u201cThe Top 5 Million Dollar Trends of 2013.\u201d<\/em><\/p>\n This article first appeared on Sizemore Insights as The Netflix Revolution: Should You Invest?<\/a><\/p>\n\n